Series B Stock Purchase Agreement



 SERIES B PREFERRED STOCK PURCHASE AGREEMENT 
  







 TABLE OF CONTENTS 
  

							
	 	  	 	  	 	  	Page


	 1.
	  	Purchase and Sale of Preferred Stock	  	1
				
	 	  	1.1	  	Sale and Issuance of Series A Preferred Stock	  	1
	 	  	1.2	  	Closing; Delivery	  	1
	 	  	1.3	  	Defined Terms Used in this Agreement	  	2
			
	 2.
	  	Representations and Warranties of the Company	  	3
				
	 	  	2.1	  	Organization, Good Standing, Corporate Power and Qualification	  	3
	 	  	2.2	  	Capitalization	  	3
	 	  	2.3	  	Subsidiaries	  	4
	 	  	2.4	  	Authorization	  	4
	 	  	2.5	  	Valid Issuance of Shares	  	5
	 	  	2.6	  	Governmental Consents and Filings	  	5
	 	  	2.7	  	Litigation	  	5
	 	  	2.8	  	Intellectual Property	  	5
	 	  	2.9	  	Compliance with Other Instruments	  	6
	 	  	2.10	  	Agreements; Actions	  	6
	 	  	2.11	  	Conflicts of Interest	  	7
	 	  	2.12	  	Rights of Registration and Voting Rights	  	7
	 	  	2.13	  	Absence of Liens	  	8
	 	  	2.14	  	Financial Statements	  	8
	 	  	2.15	  	Changes	  	8
	 	  	2.16	  	Employee Matters	  	8
	 	  	2.17	  	Tax Returns and Payments	  	9
	 	  	2.18	  	Insurance	  	10
	 	  	2.19	  	Confidential Information and Invention Assignment Agreements	  	10
	 	  	2.20	  	Permits	  	10
	 	  	2.21	  	Corporate Documents	  	10
	 	  	2.22	  	[Intentionally Omitted]	  	10
	 	  	2.23	  	Environmental and Safety Laws	  	10
	 	  	2.24	  	[Intentionally Omitted]	  	11
	 	  	2.25	  	Disclosure	  	11
			
	 3.
	  	[Intentionally Omitted]	  	11
			
	 4.
	  	Representations and Warranties of the Purchasers	  	11
				
	 	  	4.1	  	Authorization	  	11
	 	  	4.2	  	Purchase Entirely for Own Account	  	11
	 	  	4.3	  	Disclosure of Information	  	12
	 	  	4.4	  	Restricted Securities	  	12
	 	  	4.5	  	No Public Market	  	12
	 	  	4.6	  	Legends	  	12
	 	  	4.7	  	Accredited Investor	  	13

  

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 TABLE OF CONTENTS 
 (continued) 
  

							
	 	  	 	  	 	  	Page


	 	  	4.8	  	 No General Solicitation
	  	13
	 	  	4.9	  	 Exculpation Among Purchasers
	  	13
	 	  	4.10	  	 Residence
	  	13
			
	 5.
	  	Conditions to the Purchasers’ Obligations at Closing	  	13
				
	 	  	5.1	  	 Representations and Warranties
	  	13
	 	  	5.2	  	 Performance
	  	13
	 	  	5.3	  	 Compliance Certificate
	  	13
	 	  	5.4	  	 Qualifications
	  	14
	 	  	5.5	  	 [Intentionally Omitted]
	  	14
	 	  	5.6	  	 Board of Directors
	  	14
	 	  	5.7	  	 Investors’ Rights Agreement
	  	14
	 	  	5.8	  	 Right of First Refusal and Co-Sale Agreement
	  	14
	 	  	5.9	  	 Voting Agreement
	  	14
	 	  	5.10	  	 Restated Certificate
	  	14
	 	  	5.11	  	 Secretary’s Certificate
	  	14
	 	  	5.12	  	 Proceedings and Documents
	  	14
	 	  	5.13	  	 Conversion of Series A Preferred Stock
	  	14
	 	  	5.14	  	 Termination of Warrants
	  	15
	 	  	5.15	  	 Convertible Promissory Notes
	  	15
	 	  	5.16	  	 Agreement to Provide Additional Capital
	  	15
			
	 6.
	  	Conditions of the Company’s Obligations at Closing	  	15
				
	 	  	6.1	  	 Representations and Warranties
	  	15
	 	  	6.2	  	 Performance
	  	15
	 	  	6.3	  	 Qualifications
	  	15
	 	  	6.4	  	 Investors’ Rights Agreement
	  	15
	 	  	6.5	  	 Right of First Refusal and Co-Sale Agreement
	  	15
	 	  	6.6	  	 Voting Agreement
	  	15
	 	  	6.7	  	 Agreement to Provide Additional Capital
	  	15
			
	 7.
	  	Miscellaneous	  	16
				
	 	  	7.1	  	 Survival of Warranties
	  	16
	 	  	7.2	  	 Transfer; Successors and Assigns
	  	16
	 	  	7.3	  	 Governing Law
	  	16
	 	  	7.4	  	 Counterparts
	  	16
	 	  	7.5	  	 Titles and Subtitles
	  	16
	 	  	7.6	  	 Notices
	  	16
	 	  	7.7	  	 No Finder’s Fees
	  	16
	 	  	7.8	  	 Fees and Expenses
	  	 
	 	  	7.9	  	 Attorney’s Fees
	  	17
	 	  	7.10	  	 Amendments and Waivers
	  	17
	 	  	7.11	  	 Severability
	  	17

  

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 TABLE OF CONTENTS 
 (continued) 
  

							
	 	  	 	  	 	  	Page


	 	  	7.12	  	 Delays or Omissions
	  	17
	 	  	7.13	  	 Entire Agreement
	  	17
	 	  	7.14	  	 Corporate Securities Law
	  	17
			
	 Exhibit A
	  	Schedule of Purchasers	  	 
	 Exhibit B
	  	Form of Amended and Restated Certificate of Incorporation
	 Exhibit C
	  	Disclosure Schedule
	 Exhibit D
	  	Form of Indemnification Agreement
	 Exhibit E
	  	Form of Investors’ Rights Agreement
	 Exhibit F
	  	Form of Right of First Refusal and Co-Sale Agreement
	 Exhibit G
	  	Form of Voting Agreement

  

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 SERIES B PREFERRED STOCK PURCHASE AGREEMENT 
  
 This Series B Preferred Stock Purchase Agreement (the
“Agreement”) is made as of the 4th day of June 2004 by and among INSERT THERAPEUTICS, INC., a Delaware corporation (the “Company”), the investors listed on
Exhibit A attached to this Agreement (each a “Purchaser” and together the “Purchasers”). 
  
 The parties hereby agree as follows: 
  
 1. Purchase and Sale of Preferred Stock. 
  
 1.1. Sale and Issuance of Series B Preferred Stock. 
  
 (a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Closing (as defined below) the Amended and
Restated Certificate of Incorporation in the form of Exhibit B attached to this Agreement (the “Restated Certificate”). 
  
 (b) Subject to the terms and conditions of this Agreement, each Purchaser agrees to purchase at the Closing and the Company agrees to sell and issue to
each Purchaser at the Closing that number of shares of Series B Preferred Stock set forth opposite each Purchaser’s name on Exhibit A, at an aggregate purchase price of One Million Two Hundred Fifty Thousand Dollars ($1,250,000.00). The
shares of Series B Preferred Stock issued to the Purchasers pursuant to this Agreement shall be referred to in this Agreement as the “Shares.” 
  

1.2. Closing; Delivery. 
  
 (a) The purchase and sale of the Shares shall take place remotely via the exchange of documents and signatures, at 10:00 AM, Pasadena time, on June 3,
2004, or at such other time and place as the Company and the Purchasers mutually agree upon, orally or in writing (which time and place are designated as the “Closing”). 
  
 (b) At the Closing, the Company shall deliver to each Purchaser a certificate representing the Shares being purchased by
such Purchaser at such Closing against payment of the purchase price therefore by check payable to the Company, by wire transfer to a bank account designated by the Company, by cancellation or conversion of indebtedness of the Company to Purchaser,
including interest, or by any combination of such methods. 







 1.3. Defined Terms Used in this Agreement. In addition to the terms defined above, the following
terms used in this Agreement shall be construed to have the meanings set forth or referenced below. 
  
 “Affiliate” means with respect to any person or entity (a “Person”) any Person which, directly or indirectly, controls,
is controlled by, or is under common control with such Person, including, without limitation, any partner, officer, director, or member of such Person and any venture capital fund now or hereafter existing which is controlled by or under common
control with one or more general partners or shares the same management company with such Person. 
  
 “Agreement to Provide Additional Capital” means that certain Agreement to Provide Additional Capital by and between the corporation and
Arrowhead Research Corporation, a Delaware corporation (“Arrowhead”) dated as of June     , 2004. 
  
 “Code” means the Internal Revenue Code of 1986, as amended. 
  
 “Investors’ Rights Agreement” means the Amended and Restated Investor Rights Agreement between the
Company, the Purchasers and other holders of equity securities of the Company named therein, dated as of the date of the Closing, in the form of Exhibit E attached to this Agreement. 
  
 “Key Employee” means any executive-level employee (including
division director and Vice President level positions, and also including non-employee contractors holding such key positions through consulting arrangements) as well as any employee who either alone or in concert with others develops, invents,
programs or designs any Company Intellectual Property (as defined in Section 2.8). 
  
 “Material Adverse Effect” means a material adverse effect on the business, assets (including intangible assets), liabilities, financial condition, property or results of operations of the Company.

  
 “Purchaser” means each of the Purchasers who
is initially a party to this Agreement and any Additional Purchaser who becomes a party to this Agreement at a subsequent Closing under Section 1.3. 
  
 “Right of First Refusal and Co-Sale Agreement” means the agreement among the Company, certain Purchasers, and certain other stockholders
of the Company, dated as of the date of the Closing, in the form of Exhibit F attached to this Agreement. 
  
 “Securities Act” means the Securities Act of 1933, as amended. 
  
 “Shares” means the shares of Series B Preferred Stock issued at the Closing. 
  

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 “Transaction Agreements” means this Agreement, the Investors’ Rights Agreement, the
Right of First Refusal and Co-Sale Agreement and the Voting Agreement. 
  
 “Voting Agreement” means the agreement between the Company, the Purchasers and certain other stockholders of the Company, dated as of the date of the Closing, in the form of Exhibit G attached to this Agreement.

  
 2. Representations and Warranties of the
Company. The Company hereby represents and warrants to each Purchaser that, except as set forth on the Disclosure Schedule attached as Exhibit C to this Agreement which exceptions shall be deemed to be part of the representations
and warranties made hereunder, the following representations are true and complete as of the date of the Closing, except as otherwise indicated. The Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered
sections and subsections contained in this Section 2, and the disclosures in any section or subsection of the Disclosure Schedule shall qualify other sections and subsections in this Section 2 only to the extent it is readily apparent
from a reading of the disclosure that such disclosure is applicable to such other sections and subsections. 
  
 For purposes of these representations and warranties, the phrase “to the Company’s knowledge” shall mean the actual knowledge of the
following officers: John Petrovich and Mark Davis. 
  
 2.1.
Organization, Good Standing, Corporate Power and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to
carry on its business as presently conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect.

  
 2.2. Capitalization. The authorized capital of the
Company consists, immediately prior to the Closing, of: 
  
 (a)
15,000,000 shares of Common Stock, 6,161,522 shares of which are issued and outstanding immediately prior to the Closing. All of the outstanding shares of Common Stock have been duly authorized, are fully paid and nonassessable and were issued in
compliance with all applicable federal and state securities laws. 
  
 (b) 6,000,000 shares of Preferred Stock, of which 3,375,000 shares have been designated Series A Preferred Stock, all of which are issued and outstanding immediately prior to the Closing. All issued and outstanding shares of Series A
Preferred Stock shall have been converted into a like number of shares of Common Stock of the Company concurrently with the Closing. 
  
 (c) The Company has reserved 1,200,000 shares of Common Stock for issuance to officers, directors, employees and consultants of the Company pursuant to
its 2000 Stock Incentive Plan, duly adopted by the Board of Directors and approved by the Company 
  

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 stockholders (the “Stock Plan”). Of such reserved shares of Common Stock, 49,022 shares have been issued
pursuant to restricted stock purchase agreements, options to purchase 406,042 shares have been granted and are currently outstanding, and 744,936 shares of Common Stock remain available for issuance to officers, directors, employees and consultants
pursuant to the Stock Plan. 
  
 (d) Section 2.2(d) of the
Disclosure Schedule sets forth the capitalization of the Company immediately following the Closing including the number of shares of the following: (i) issued and outstanding Common Stock; (ii) issued stock options; (iii) stock options not yet
issued but reserved for issuance; (iv) each series of Preferred Stock; and (v) warrants or stock purchase rights, if any. Except for (A) the conversion privileges of the Shares to be issued under this Agreement, (B) the rights provided in Section
2.4 of the Investors’ Rights Agreement, and (C) the securities and rights described in Section 2.2(c) of this Agreement and Section 2.2(d) of the Disclosure Schedule, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, to purchase or acquire from the Company any shares of Common Stock or Series B Preferred Stock, or any securities
convertible into or exchangeable for shares of Common Stock or Series B Preferred Stock. 
  
 (e) All outstanding shares of the Company’s Common Stock and all shares of the Company’s Common Stock underlying outstanding options are subject to (i) a right of first refusal in favor of the Company upon
any proposed transfer (other than transfers for estate planning purposes); and (ii) a lock-up or market standoff agreement of not less than 180 days following the Company’s initial public offering pursuant to a registration statement filed with
the Securities and Exchange Commission under the Securities Act. 
  
 2.3. Subsidiaries. The Company does not currently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, limited liability company, association, or other business entity. The
Company is not a participant in any joint venture, partnership or similar arrangement. 
  
 2.4. Authorization. All corporate action required to be taken by the Company’s Board of Directors and stockholders in order to authorize the Company to enter into the Transaction Agreements, and to issue
the Shares at the Closing and the Common Stock issuable upon conversion of the Shares, has been taken or will be taken prior to the Closing. All action on the part of the officers of the Company necessary for the execution and delivery of the
Transaction Agreements, the performance of all obligations of the Company under the Transaction Agreements to be performed as of the Closing, and the issuance and delivery of the Shares has been taken or will be taken prior to the Closing. The
Transaction Agreements, when executed and delivered by the Company, shall constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their respective terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief, or other equitable remedies, or (iii) to the extent the indemnification provisions contained in the Investors’ Rights Agreement may be limited by applicable federal or state securities laws. 

 

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 2.5. Valid Issuance of Shares. The Shares, when issued, sold and delivered in accordance with the
terms and for the consideration set forth in this Agreement, will be validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investors’ Rights Agreement,
the Voting Agreement, applicable state and federal securities laws and liens or encumbrances created by or imposed by a Purchaser. Assuming the accuracy of the representations of the Purchasers in Section 3 of this Agreement and subject to
the filings described in Section 2.6(ii) below, the Shares will be issued in compliance with all applicable federal and state securities laws. The Common Stock issuable upon conversion of the Shares has been duly reserved for issuance, and
upon issuance in accordance with the terms of the Restated Certificate, will be validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under the Transaction Agreements, applicable
federal and state securities laws and liens or encumbrances created by or imposed by a Purchaser. Based in part upon the representations of the Purchasers in Section 4 of this Agreement, and subject to Section 2.6 below, the Common
Stock issuable upon conversion of the Shares will be issued in compliance with all applicable federal and state securities laws. 
  
 2.6. Governmental Consents and Filings. Assuming the accuracy of the representations made by the Purchasers in Section 4 of this Agreement,
no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority is required on the part of the Company in connection with the consummation
of the transactions contemplated by this Agreement, except for (i) the filing of the Restated Certificate, which will have been filed as of the Closing, and (ii) filings pursuant to Regulation D of the Securities Act, and applicable state securities
laws, which have been made or will be made in a timely manner. 
  
 2.7. Litigation. There is no claim, action, suit, proceeding, arbitration, complaint, charge or investigation pending or to the Company’s knowledge, currently threatened (i) against the Company or any officer, director or Key
Employee of the Company; or (ii) to the Company’s knowledge, that questions the validity of the Transaction Agreements or the right of the Company to enter into them, or to consummate the transactions contemplated by the Transaction Agreements;
or (iii) to the Company’s knowledge, that would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.  
  

2.8. Intellectual Property. The Company owns or possesses sufficient legal rights to (i) all trademarks, service marks, tradenames, copyrights,
trade secrets, licenses, information and proprietary rights and processes and (ii) to the Company’s knowledge, all patents and patent right, (such rights are collectively referred to herein as the “Company Intellectual
Property”) as are necessary to the conduct of the Company’s business as now conducted and as presently proposed to be conducted, without any known conflict with, or infringement of, the rights of others. To the
Company’s knowledge, no product or service marketed or sold (or proposed to be marketed or sold) by the Company violates or will violate any license or infringe any intellectual property rights of any other party. Other than with respect

  

 5 








 to commercially available software products under standard end-user object code license agreements, there are no
outstanding options, licenses, agreements, claims, encumbrances or shared ownership interests of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any communications alleging that the Company has violated
or, by conducting its business, would violate any of the patents, trademarks, service marks, tradenames, copyrights, trade secrets or other proprietary rights or processes of any other person or entity. To the Company’s knowledge, it will not
be necessary to use any inventions of any of its employees (or persons it currently intends to hire) made prior to their employment by the Company. Each Key Employee has assigned to the Company all intellectual property rights he or she owns that
are related to the Company’s business as now conducted. Section 2.8 of the Disclosure Schedule lists all patents, patent applications, registered trademarks, trademark applications, registered service marks, service mark applications,
registered copyrights and domain names of the Company. For purposes of this Section 2.8, the Company shall be deemed to have knowledge of a patent right if the Company has actual knowledge of the patent right or would be found to be on notice
of such patent right as determine by reference to United States patent laws. 
  
 2.9. Compliance with Other Instruments. The Company is not in violation or default (i) of any provisions of its Restated Certificate or Bylaws, (ii) of any instrument, judgment, order, writ or decree, (iii)
under any note, indenture or mortgage, or (iv) under any lease, agreement, contract or purchase order to which it is a party or by which it is bound that is required to be listed on the Disclosure Schedule, or, to its knowledge, of any provision of
federal or state statute, rule or regulation applicable to the Company, the violation of which would have a Material Adverse Effect. The execution, delivery and performance of the Transaction Agreements and the consummation of the transactions
contemplated by the Transaction Agreements will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either (i) a default under any such provision, instrument, judgment,
order, writ, decree, contract or agreement or (ii) an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, forfeiture, or nonrenewal of any material permit or license
applicable to the Company. 
  
 2.10. Agreements; Actions.

  
 (a) Except for the Transaction Agreements, there are no
agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of $25,000, (ii) the
license of any patent, copyright, trade secret or other proprietary right to or from the Company, (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products to any other person or affect the Company’s
exclusive right to develop, manufacture, assemble, distribute, market or sell its products, or (iv) indemnification by the Company with respect to infringements of proprietary rights. 
  

 6 








 (b) The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $100,000 or in excess of $250,000 in the aggregate, (iii) made any loans or
advances to any person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. For the purposes of
subsections (b) and (c) of this Section 2.10, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has
reason to believe are affiliated with each other) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsection. 
  
 (c) The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. 
  
 2.11. Conflicts of Interest. 
  
 (a) Other than (i) standard employee benefits generally made available to
all employees, (ii) standard director and officer indemnification agreements approved by the Board of Directors, and (iii) the purchase of shares of the Company’s capital stock and the issuance of options to purchase shares of the
Company’s Common Stock, in each instance, approved by the Board of Directors, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, or Key Employees, or any Affiliate thereof.

  
 (b) The Company is not indebted, directly or indirectly, to
any of its directors, officers or employees or to their respective spouses or children or to any Affiliate of any of the foregoing, other than in connection with expenses or advances of expenses incurred in the ordinary course of business or
employee relocation expenses. None of the Company’s directors, officers or employees, or any members of their immediate families, or any Affiliate of the foregoing (i) are, directly or indirectly, indebted to the Company or, (ii) to the
Company’s knowledge, have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the
Company except that directors, officers or employees or stockholders of the Company may own stock in (but not exceeding two percent of the outstanding capital stock of) publicly traded companies that may compete with the Company. To the
Company’s knowledge, none of the Company’s directors, officers or employees or any members of their immediate families or any Affiliate of any of the foregoing are, directly or indirectly, interested in any material contract with the
Company. None of the directors or officers, or any members of their immediate families, has any material commercial, industrial, banking, consulting, legal, accounting, charitable or familial relationship with any of the Company’s major
business relationship partners, service providers, joint venture partners, licensees and competitors. 
  
 2.12. Rights of Registration and Voting Rights. Except as provided in the Investors’ Rights Agreement, the Company is not under any obligation
to register under the 
  

 7 








 Securities Act any of its currently outstanding securities or any securities issuable upon exercise or conversion of its
currently outstanding securities. To the Company’s knowledge, except as contemplated in the Voting Agreement, no stockholder of the Company has entered into any agreements with respect to the voting of capital shares of the Company. 

 
 2.13. Absence of Liens. The property and assets that the Company
owns are free and clear of all mortgages, deeds of trust, liens, loans and encumbrances, except for statutory liens for the payment of current taxes that are not yet delinquent and encumbrances and liens that arise in the ordinary course of business
and do not materially impair the Company’s ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to its knowledge, holds a valid leasehold interest
free of any liens, claims or encumbrances other than those of the lessors of such property or assets. 
  
 2.14. Financial Statements. The Company has delivered to each Purchaser its unaudited financial statements as of December 31, 2003 and for the
fiscal year ended December 31, 2003 and its unaudited financial statements (including balance sheet, income statement and statement of cash flows) as of June __, 2004 (the “Balance Sheet Date”) and for the year-to-date period ended on the
Balance Sheet Date (collectively, the “Financial Statements”). The Financial Statements fairly present in all material respects the financial condition and operating results of the Company as of the dates, and for the periods,
indicated therein, subject in the case of the unaudited financial statements to normal year-end audit adjustments. Except as set forth in the Financial Statements and in Section 2.14 of the Disclosure Schedule, the Company has no material
liabilities or obligations, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the Balance Sheet Date, and (ii) obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, in both cases, individually and in the aggregate would not have a Material Adverse Effect. The Company maintains and will
continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles. 
  
 2.15. Changes. To the Company’s knowledge, since the Balance Sheet Date, there have been no events or circumstances of any kind that have had
or could reasonably be expected to result in a Material Adverse Effect. 
  
 2.16. Employee Matters.  
  
 (a) As of
the date hereof, the Company employs four (4) full-time employees and engages 2 consultants or independent contractors on a regular basis. 
  
 (b) To the Company’s knowledge, none of its employees is obligated under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with such employee’s ability to promote the interest of the Company or that would conflict with the
Company’s business. Neither the execution or delivery of the Transaction Agreements, nor the carrying on of the Company’s business by the employees of the Company, nor the conduct of the Company’s business as now conducted and as
presently 
  

 8 








 proposed to be conducted, will, to the Company’s knowledge, conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract, covenant or instrument under which any such employee is now obligated. 
  
 (c) The Company is not delinquent in payments to any of its employees, consultants, or independent contractors for any wages, salaries, commissions,
bonuses, or other direct compensation for any service performed for it to the date hereof or amounts required to be reimbursed to such employees, consultants, or independent contractors. The Company has complied with all applicable state and federal
equal employment opportunity laws and with other laws related to employment, including those related to wages, hours, worker classification, collective bargaining, and the payment and withholding of taxes and other sums as required by law except
where noncompliance with any applicable law would not result in a Material Adverse Effect. The Company has withheld and paid to the appropriate governmental entity or is holding for payment not yet due to such governmental entity all amounts
required to be withheld from employees of the Company and is not liable for any arrears of wages, taxes, penalties, or other sums for failure to comply with any of the foregoing. 
  
 (d) To the Company’s knowledge, no Key Employee intends to terminate employment with the Company or is otherwise
likely to become unavailable to continue as a Key Employee, nor does the Company have a present intention to terminate the employment of any of the foregoing. The employment of each employee of the Company is terminable at the will of the Company.
Except as set forth in Section 2.16 of the Disclosure Schedule or as required by law, upon termination of the employment of any such employees, no severance or other payments will become due. Except as set forth in Section 2.16 of the
Disclosure Schedule, the Company has no policy, practice, plan, or program of paying severance pay or any form of severance compensation in connection with the termination of employment services. 
  
 (e) The Company has not made any representations regarding equity incentives
to any officer, employees, director or consultant that are inconsistent with the share amounts and terms set forth in the Company’s board minutes. 
  
 (f) Section 2.16 of the Disclosure Schedule sets forth each employee benefit plan maintained, established or sponsored by the Company, or which
the Company participates in or contributes to, which is subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Company has made all required contributions and has no liability to any such employee
benefit plan, other than liability for health plan continuation coverage described in Part 6 of Title I(B) of ERISA, and has complied in all material respects with all applicable laws for any such employee benefit plan. 
  
 2.17. Tax Returns and Payments. There are no federal, state,
county, local or foreign taxes dues and payable by the Company which have not been timely paid. There are no accrued and unpaid federal, state, county, local or foreign taxes of the Company which are due, whether or not assessed or disputed. There
have been no examinations or audits of any tax returns or reports by any applicable federal, state, local or foreign governmental agency. The Company has duly and timely filed all federal, state, county, local and foreign tax returns required to
have been filed by it and there are in effect no waivers of applicable statutes of limitations with respect to taxes for any year. 
  

 9 








 2.18. Insurance. Section 2.18 of the Disclosure Schedule provides a complete list of the
Company’s fire and casualty insurance policies currently in effect. 
  
 2.19. Confidential Information and Invention Assignment Agreements. Each current and former Key Employee, consultant and officer of the Company has executed an agreement with the Company regarding
confidentiality and proprietary information substantially in the form or forms delivered to the counsel for the Purchasers (the “Confidential Information Agreements”). No current or former Key Employee, consultant or officer of the
Company has excluded works or inventions from his or her assignment of inventions pursuant to such Key Employee’s, consultant’s or officer’s Confidential Information Agreements. The Company is not aware that any of its Key Employees,
consultants or officers is in violation thereof. 
  
 2.20.
Permits. The Company and each of its subsidiaries has all franchises, permits, licenses and any similar authority necessary for the conduct of its business, the lack of which could reasonably be expected to have a Material Adverse Effect. The
Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority. 
  
 2.21. Corporate Documents. The Restated Certificate and Bylaws of the Company are in the form provided to the Purchasers. The copy of the minute
books of the Company provided to the Purchasers contains minutes of all meetings of directors and stockholders and all actions by written consent without a meeting by the directors and stockholders since the date of incorporation and accurately
reflects in all material respects all actions by the directors (and any committee of directors) and stockholders with respect to all transactions referred to in such minutes. 
  
 2.22. [Intentionally Omitted]. 
  
 2.23. Environmental and Safety Laws. Except as could not reasonably be expected to have a Material Adverse Effect (a) the Company is and has been
in compliance with all Environmental Laws; (b) there has been no release or to the Company’s knowledge threatened release of any pollutant, contaminant or toxic or hazardous material, substance or waste, or petroleum or any fraction thereof,
(each a “Hazardous Substance”) on, upon, into or from any site currently or heretofore owned, leased or otherwise used by the Company; (c) there have been no Hazardous Substances generated by the Company that have been disposed of
or come to rest at any site that has been included in any published U.S. federal, state or local “superfund” site list or any other similar list of hazardous or toxic waste sites published by any governmental authority in the United
States; and (d) there are no underground storage tanks located on, no polychlorinated biphenyls (“PCBs”) or PCB-containing equipment used or stored on, and no hazardous waste as defined by the Resource Conservation and Recovery Act,
as amended, stored on, any site owned or operated by the Company, except for the storage of hazardous waste in compliance with Environmental Laws. The Company has made available to the Purchasers true and complete copies of all material
environmental records, reports, notifications, certificates of need, permits, pending permit applications, correspondence, engineering studies, and environmental studies or assessments. 
  

 10 








 For purposes of this Section 2.24, “Environmental Laws” means any law, regulation, or
other applicable requirement relating to (a) releases or threatened release of Hazardous Substance; (b) pollution or protection of employee health or safety, public health or the environment; or (c) the manufacture, handling, transport, use,
treatment, storage, or disposal of Hazardous Substances. 
  
 2.24.
[Intentionally Omitted] 
  
 2.25. Disclosure. The Company
has made available to the Purchasers all the information reasonably available to the Company that the Purchasers have requested for deciding whether to acquire the Shares, including certain of the Company’s projections describing its proposed
business plan (the “Business Plan”). To the Company’s knowledge, no representation or warranty of the Company contained in this Agreement, as qualified by the Disclosure Schedule, and no certificate furnished or to be furnished
to Purchasers at the Closing contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were
made. The Business Plan was prepared in good faith; however, the Company does not warrant that it will achieve any results projected in the Business Plan. It is understood that this representation is qualified by the fact that the Company has not
delivered to the Purchasers, and has not been requested to deliver, a private placement or similar memorandum or any written disclosure of the types of information customarily furnished to purchasers of securities. 
  
 3. [Intentionally Omitted]. 
  
 4. Representations and Warranties of the Purchasers. Each Purchaser
hereby represents and warrants to the Company, severally and not jointly, that: 
  
 4.1. Authorization. The Purchaser has full power and authority to enter into the Transaction Agreements. The Transaction Agreements to which such Purchaser is a party, when executed and delivered by the
Purchaser, will constitute valid and legally binding obligations of the Purchaser, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any
other laws of general application affecting enforcement of creditors’ rights generally, and as limited by laws relating to the availability of a specific performance, injunctive relief, or other equitable remedies, or (b) to the extent the
indemnification provisions contained in the Investors’ Rights Agreement may be limited by applicable federal or state securities laws. 
  
 4.2. Purchase Entirely for Own Account. This Agreement is made with the Purchaser in reliance upon the Purchaser’s representation to the
Company, which by the Purchaser’s execution of this Agreement, the Purchaser hereby confirms, that the Securities to be acquired by the Purchaser will be acquired for investment for the Purchaser’s own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and that 
  

 11 








 the Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, the Purchaser further represents that the Purchaser does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Shares. The Purchaser has not been formed for the specific purpose of acquiring the Shares. 
  
 4.3. Disclosure of Information. The Purchaser has had an opportunity to discuss the Company’s business, management, financial affairs and the
terms and conditions of the offering of the Stock with the Company’s management and has had an opportunity to review the Company’s facilities. The foregoing, however, does not limit or modify the representations and warranties of the
Company in Section 2 of this Agreement or the right of the Purchasers to rely thereon. 
  
 4.4. Restricted Securities. The Purchaser understands that the Shares have not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of
the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser’s representations as expressed herein. The Purchaser understands that the Shares are “restricted
securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification requirements is available. The Purchaser acknowledges that the Company has no obligation to register or qualify the Shares, or the Common Stock into which it may be converted, for
resale except as set forth in the Investors’ Rights Agreement. The Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to,
the time and manner of sale, the holding period for the Shares, and on requirements relating to the Company which are outside of the Purchaser’s control, and which the Company is under no obligation and may not be able to satisfy. 

 
 4.5. No Public Market. The Purchaser understands that no public
market now exists for the Shares, and that the Company has made no assurances that a public market will ever exist for the Shares. 
  
 4.6. Legends. The Purchaser understands that the Shares and any securities issued in respect of or exchange for the Shares, may bear one or all of
the following legends: 
  
 (a) “THE SHARES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.” 
  

 12 








 (b) Any legend set forth in, or required by, the other Transaction Agreements. 
  
 (c) Any legend required by the securities laws of any state to the extent
such laws are applicable to the Shares represented by the certificate so legended. 
  
 4.7. Accredited Investor. The Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 
  
 4.8 No General Solicitation. Neither the Purchaser, nor any of its officers, directors, employees, agents,
stockholders or partners has either directly or indirectly, including through a broker or finder (a) engaged in any general solicitation, or (b) published any advertisement in connection with the offer and sale of the Shares. 
  
 4.9. Exculpation Among Purchasers. Each Purchaser acknowledges that it
is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Each Purchaser agrees that no Purchaser nor the respective controlling
persons, officers, directors, partners, agents, or employees of any Purchaser shall be liable to any other Purchaser for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the purchase of the Shares.

  
 4.10. Residence. If the Purchaser is an individual,
then the Purchaser resides in the state or province identified in the address of the Purchaser set forth on Exhibit A; if the Purchaser is a partnership, corporation, limited liability company or other entity, then the office or offices of
the Purchaser in which its principal place of business is located at the address or addresses of the Purchaser set forth on Exhibit A. 
  
 5. Conditions to the Purchasers’ Obligations at Closing. The obligations of each Purchaser to purchase Shares at the Closing or any subsequent
Closing are subject to the fulfillment, on or before such Closing, of each of the following conditions, unless otherwise waived: 
  
 5.1. Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true and correct in
all material respects as of such Closing, except that any such representations and warranties shall be true and correct in all respects where such representation and warranty is qualified with respect to materiality in Section 2. 

 
 5.2. Performance. The Company shall have performed and complied
with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before such Closing. 
  
 5.3. Compliance Certificate. The President of the Company shall deliver to the Purchasers at such Closing a
certificate certifying that the conditions specified in Sections 5.1 and 5.2 have been fulfilled. 
  

 13 








 5.4. Qualifications. All authorizations, approvals or permits, if any, of any governmental
authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Shares pursuant to this Agreement shall be obtained and effective as of such Closing. 
  
 5.5. [Intentionally Omitted]. 
  
 5.6. Board of Directors. As of the Closing, the authorized size of the
Board shall be three (3), and the Board shall be comprised of Bruce Stewart, Edward Frykman and Mark Davis. 
  
 5.7. Investors’ Rights Agreement. The Company, each Purchaser (other than the Purchaser relying upon this condition to excuse such
Purchaser’s performance hereunder) and each other signatory thereto shall have executed and delivered the Investors’ Rights Agreement. 
  
 5.8. Right of First Refusal and Co-Sale Agreement. The Company, each Purchaser (other than the Purchaser relying upon this condition to excuse such
Purchaser’s performance hereunder), and the other stockholders of the Company named as parties thereto shall have executed and delivered the Right of First Refusal and Co-Sale Agreement. 
  
 5.9. Voting Agreement. The Company, each Purchaser (other than the
Purchaser relying upon this condition to excuse such Purchaser’s performance hereunder), and the other stockholders of the Company named as parties thereto shall have executed and delivered the Voting Agreement. 
  
 5.10. Restated Certificate. The Company shall have filed the Restated
Certificate with the Secretary of State of Delaware on or prior to the Closing, which shall continue to be in full force and effect as of the Closing. 
  
 5.11. Secretary’s Certificate. The Secretary of the Company shall have delivered to the Purchaser at the Closing a certificate certifying (i)
the Bylaws of the Company, (ii) resolutions of the Board of Directors of the Company approving the Transaction Agreements and the transactions contemplated under the Transaction Agreements, and (iii) resolutions of the stockholders of Company
approving the Restated Certificate. 
  
 5.12. Proceedings and
Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Purchaser, and Purchaser (or its counsel)
shall have received all such counterpart original and certified or other copies of such documents as reasonably requested. Such documents may include good standing certificates. 
  
 5.13. Conversion of Series A Preferred Stock. The holders of all shares of Series A Preferred Stock of the Company
that are outstanding immediately prior to the Closing shall have converted such shares into Common Stock of the Company at a ratio of 1 share of Common Stock for each share of Series A Preferred Stock so converted. 
  

 14 








 5.14. Termination of Warrants. The holders of those certain Preferred Stock Purchase Warrants of
the Company, dated as of September 18, 2002, will have executed and delivered documents acceptable to the Purchaser evidencing the termination of said warrants without exercise. 
  
 5.15. Convertible Promissory Notes. All amounts owing under certain Convertible Preferred Notes of the Company in the
aggregate principal amount of $2,000,000, plus accrued but unpaid interest, issued to California Technology Partners LP and JJ Jacobs Enterprises, LLC will, notwithstanding the terms of said notes, be converted into shares of Common Stock of the
Company at a conversion price of $.50 per share. All security agreements in assets of the Company relating to said notes (including without limitation those set forth in the Disclosure Schedule) will be terminated. 
  
 5.16. Agreement to Provide Additional Capital. The Company and
Arrowhead shall have executed and delivered the Agreement to Provide Additional Capital. 
  
 6. Conditions of the Company’s Obligations at Closing. The obligations of the Company to sell Shares to the Purchasers at the Closing or any subsequent Closing are subject to the fulfillment, on or before
the Closing, of each of the following conditions, unless otherwise waived: 
  
 6.1. Representations and Warranties. The representations and warranties of each Purchaser contained in Section 3 shall be true and correct in all material respects as of such Closing. 

 
 6.2. Performance. The Purchasers shall have performed and complied
with all covenants, agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by them on or before such Closing. 
  
 6.3. Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory
body of the United States or of any state that are required in connection with the lawful issuance and sale of the Stock pursuant to this Agreement shall be obtained and effective as of the Closing. 
  
 6.4. Investors’ Rights Agreement. Each Purchaser shall
have executed and delivered the Investors’ Rights Agreement. 
  
 6.5. Right of First Refusal and Co-Sale Agreement. Each Purchaser shall have executed and delivered the Right of First Refusal and Co-Sale Agreement. 
  
 6.6. Voting Agreement. Each Purchaser shall have executed and delivered the Voting Agreement. 
  
 6.7. Agreement to Provide Additional Capital. The Company and
Arrowhead shall have executed and delivered the Agreement to Provide Additional Capital. 
  

 15 








 7. Miscellaneous. 
  
 7.1. Survival of Warranties. Unless otherwise set forth in this Agreement, the representations and warrants of the
Company and the Purchasers contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on
behalf of the Purchasers or the Company. 
  
 7.2.
Transfer; Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 
  
 7.3. Governing Law. This Agreement shall be governed by and construed
in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the California, without regard to
its principles of conflicts of laws. 
  
 7.4. Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by facsimile signature
and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 
  
 7.5. Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing
or interpreting this Agreement. 
  
 7.6. Notices. All
notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if
sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after
deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth on the signature page or Exhibit
A, or to such e-mail address, facsimile number or address as subsequently modified by written notice given in accordance with this Section 7.6. 
  
 7.7. No Finder’s Fees. Each party represents that it neither is nor will be obligated for any finder’s fee or commission in connection
with this transaction. Each Purchaser agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s fee arising out of this transaction (and the costs and expenses of
defending against such liability or asserted liability) for which each Purchaser or any of its officers, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless each Purchaser from any liability for any
commission or compensation in the 
  

 16 








 nature of a finder’s or broker’s fee arising out of this transaction (and the costs and expenses of defending
against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 
  
 7.9. Attorney’s Fees. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of the
Transaction Agreements, the prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 
  
 7.10. Amendments and Waivers. Except as set forth in Section
1.3 of this Agreement, any term of this Agreement may be amended, terminated or waived only with the written consent of the Company and (i) the holders of at least seventy-five percent (75%) of the then-outstanding Shares or (ii) for an
amendment, termination or waiver effected prior to the Closing, Purchasers obligated to purchase seventy-five percent (75%) of the Shares to be issued at the Closing. Any amendment or waiver effected in accordance with this Section 7.10 shall
be binding upon the Purchasers and each transferee of the Shares (or the Common Stock issuable upon conversion thereof), each future holder of all such securities, and the Company. 
  
 7.11. Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision. 
  
 7.12. Delays or
Omissions. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such
non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on
the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded
to any party, shall be cumulative and not alternative. 
  
 7.13.
Entire Agreement. This Agreement (including the Exhibits hereto, if any), the Restated Certificate and the other Transaction Agreements (as defined in the Stock Purchase Agreement) constitute the full and entire understanding and agreement
between the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties are expressly canceled. 
  
 7.14 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION
IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY 
  

 17 








 SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT. 
  
 [Remainder of Page Intentionally Left Blank] 
  

 18 








 The parties have executed this Series B Preferred Stock Purchase Agreement as of the date first written
above. 
  

			
	COMPANY:
		
	 By:
	 	 /s/ John G. Petrovich


	 Name:
	 	 John G. Petrovich

	 	 	 (print)

	 Title:
	 	 President

		
	 Address:
	 	 
	
	PURCHASERS:
	
	 ARROWHEAD RESEARCH CORPORATION

		
	 By:
	 	 /s/ R. Bruce Stewart


	 Name:
	 	 R. Bruce Stewart

	 	 	 (print)

	 Title:
	 	 President

		
	 Address:
	 	 
	
	CALIFORNIA INSTITUTE OF TECHNOLOGY
		
	 By:
	 	 /s/ Albert G. Horvath


	 Name:
	 	 Albert G. Horvath


	 	 	 (print)

	 Title:
	 	 Vice President, Business Finance


	 Address:
	 	 Office of Technology Transfer
 1200 E. California Blvd.
 Mail Code 210-85
 Pasadena, CA 91125



  
  
 SIGNATURE PAGE TO PURCHASE AGREEMENT 







 AGREEMENT TO PROVIDE ADDITIONAL CAPITAL 
  
 THIS AGREEMENT TO PROVIDE ADDITIONAL CAPITAL (this “Agreement”) is made and entered into as of June 4, 2004, by
and between Arrowhead Research Corporation, a Delaware corporation (“Arrowhead”), and Insert Therapeutics, Inc., a California corporation (the “Company”). 
  
 A. Concurrent with the execution and delivery hereof, Arrowhead has entered into a Stock Purchase Agreement dated June 4,
2004 (the “Purchase Agreement”), pursuant to which, among other things, Arrowhead has agreed to purchase 24,496,553 shares of Series B Preferred Stock of the Company (the “Series B Preferred Stock”). 
  
 B. The Purchase Agreement has been entered into in contemplation of and in
consideration of this Agreement, whereby Arrowhead agrees to contribute up to $4,000,000 of additional capital to the Company on the terms and conditions set forth herein, provided the Company meets certain milestones relating to the development of
the Company’s business, and also agrees that a portion of the Series B Preferred Stock purchased by Arrowhead pursuant to the Purchase Agreement will be forfeited by Arrowhead to the Company in the event that Arrowhead fails to provide the
agreed upon additional capital despite the attainment by the Company of the specified milestones, 
  
 C. This Agreement is being executed and delivered by the parties hereto as contemplated by the Purchase Agreement. 
  
 NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements set forth below, the parties hereto agree as follows: 
  
 1. Commitment to Provide Additional Capital. Arrowhead agrees to provide up to $4,000,000 of additional capital to the Company, on the following terms and subject to the following conditions: 
  
 (a) Attached hereto as Appendix I is a schedule setting forth specified
milestones in the development of its business (the “Milestones”). The date upon which each such Milestone shall have been met or accomplished is hereinafter referred to as a “Milestone Date.” 
  
 (b) Within ten (10) business days following each successive Milestone Date
specified in Appendix I, the Company shall deliver to Arrowhead a certificate of the President and the Chief Technical Officer of the Company setting forth, in reasonable detail, sufficient information for Arrowhead to evaluate whether the Company
has achieved the specific Milestone to be achieved by the Milestone Date in question. 
  
 (c) Arrowhead will have a period of twenty (20) business days following receipt of the certificate specified in subparagraph 1(b) to evaluate the information provided to Arrowhead by the Company in the certificate. In
the event that Arrowhead determines, to its reasonable satisfaction, that the Milestone in question was achieved by the Company by the applicable Milestone Date, Arrowhead shall, within such 20-day period, provide to the Company, in cash, by
corporate check(s) or wire transfer, the amount of additional capital set forth on Appendix I opposite the Milestone and Milestone Date in question. 
  

 -20- 








 (d) Any and all amounts provided by Arrowhead to the Company pursuant to this Agreement shall be deemed
contributions to the capital of the Company by Arrowhead, as an existing holder of capital stock of the Company. It is understood and agreed that no capital stock or other security of the Company shall be issued to Arrowhead in consideration or on
account of any additional capital provided by Arrowhead to the Company pursuant to the provisions of this Agreement, and that none of such funds shall be considered a loan by Arrowhead to the Company, or otherwise be repayable by the Company to
Arrowhead. However, the liquidation preference to which Arrowhead is entitled as holder of the Company’s Series B Preferred Stock will be increased, as provided in the Amended and Restated Certificate of Incorporation of Insert Therapeutics,
Inc. (the “Restated Certificate of Incorporation”), by the full amount of any and all amounts so contributed by Arrowhead to the capital of the Company, but the number of shares of Common Stock into which each share of Series B Preferred
Stock may be converted shall not be affected by any such contribution. 
  
 2. Failure of Arrowhead to Make a Required Contribution. In the event that Arrowhead fails to provide, on a timely basis, any amount of additional funding that Arrowhead is obligated to provide pursuant to the provisions of paragraph
1 above, then in addition to any consequences of such failure provided in the Restated Certificate of Incorporation or By-Laws of the Company, Arrowhead shall forfeit to the Company that number of shares of the Series B Preferred Stock of the
Company then owned by Arrowhead (or any shares of Common Stock into which such shares of Series B Preferred Stock may have been converted) which is calculated by dividing by five (5) the sum of (i) the amount of additional capital which Arrowhead
failed to provide with respect to the Milestone Date in question and (ii) the total amount of capital which would be due on satisfaction of Milestones on any future Milestone Dates. For example, if Arrowhead failed to provide $1,000,000 of
additional capital which it was obligated to provide pursuant to the provisions of paragraph 1 above, Arrowhead would forfeit twenty percent (20%) of its shares of Series B Preferred Stock. 
  
 3. Miscellaneous. 
  
 (a) Subject to the terms and conditions of this Agreement, each of the
parties hereto shall use its best efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws, rules and regulations to consummate and make effective the
transactions contemplated by this Agreement. 
  
 (b) This
Agreement shall be binding upon and inure to the benefit of the parties hereto, the heirs, personal representatives, successors and permitted assigns of each of the parties hereto, but shall not confer, expressly or by implication, any rights or
remedies upon any other party. Neither this Agreement nor any of the rights, interests or obligations of either party hereunder may be assigned without the prior written consent of the other party. 
  
 (c) This Agreement shall be governed by and construed in accordance with the
General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the California, without regard to its principles of
conflicts of laws. 
  

 - 21 - 








 (d) All notices, requests or demands and other communications hereunder must be in writing and shall be
deemed to have been duly made if personally delivered or mailed, postage prepaid, to the parties at their respective addresses set forth on the signature page hereof. Any party hereto may change its address by written notice to the other party given
in accordance with this subsection 3(d). 
  
 (e) This Agreement,
together with the exhibits attached hereto, contains the entire agreement between the parties and supersedes all prior agreements, understandings and writings between the parties with respect to the subject matter hereof and thereof. Each party
hereto acknowledges that no representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting with authority on behalf of any party, which are not embodied herein or in an exhibit hereto, and that
no other agreement, statement or promise may be relied upon or shall be valid or binding. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated orally. This Agreement may be amended or any term hereof may be
changed, waived, discharged or terminated only by an agreement in writing signed by each of the parties hereto. 
  
 (f) The captions and headings used herein are for convenience only and shall not be construed as a part of this Agreement. 
  
 (g) In the event of any litigation between the parties hereto, the
non-prevailing party shall pay the reasonable expenses, including the attorneys’ fees, of the prevailing party in connection therewith. 
  
 (h) This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which taken together shall constitute but one and
the same document. 
  
 [The next page
is the signature page] 
  

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 IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day and
year first above written. 
  

			
	 	 	“The Company”
	
	INSERT THERAPEUTICS, INC.
		
	By:	 	 John Petrovich


	Title:	 	President
		
	 	 	“Arrowhead”
	
	ARROWHEAD RESEARCH CORPORATION
		
	By:	 	 R. Bruce Stewart


	Title:	 	President


  

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 Appendix I 
  
 To 
  
 Agreement to Contribute Capital 
  

						
	 	  	 Description

	  	 Capital to be
 Contributed


			
	 Milestone 1
	  	December 1, 2004	  	$	1,000,000.00
			
	 Milestone 2
	  	FDA approval to commence Phase 1 clinical trials for Cyclosert-Camptothecin conjugate	  	$	1,500,000.00
			
	 Milestone 3
	  	FDA approval to commence Phase 2 clinical trials for Cyclosert-Camptothecin conjugate	  	$	1,500,000.00

  

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